The recent rise in long-term interest rates has been good for life insurance stocks, which remain undervalued, according to a market analyst with Sterne Agee.
“Overwhelmingly we find investors more positive on the outlook for life insurance stocks, primarily as a result of the recent move higher long-term rates and investor views that long-term rates are far more likely to move higher still from current levels,” Sterne Agee Analyst John Nadel wrote in July 17 report. “Clearly this is positive for life insurers, as it both reduces the risk of further balance sheet related ‘impairments’ (DAC, goodwill, reserves, etc.) and, over time, reduces the headwind on spread-based earnings.
“At our Insurance Idea Dinner [on July 16], investors were clearly more positive on the outlook for life insurance stocks despite the roughly 40 percent [year-to-date] performance for our group, particularly on a relative basis versus other financial sub-sectors (most notably P&C underwriters and reinsurers) as well as regional banks,” he added.